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September 30, 2013 3:15 AM, EDT

Welch Removes Rogers as Head of YRC Freight

By Rip Watson, Senior Reporter

This story appears in the Sept. 30 print edition of Transport Topics.

YRC Worldwide Inc. CEO James Welch has put himself in charge of the company’s $3.3 billion a year  less-than-truckload unit, replacing Jeff Rogers, who departed as profit-improvement efforts sagged.

YRC’s statement Sept. 20 said Rogers “is no longer with the company,” without giving additional details.

“We have additional work to do at YRC Freight, and we are committed to taking the necessary steps to move our business forward,” Welch said in the statement. “Our first priority will be working through the recent optimization of the YRC Freight network, which was designed to enhance the consistent, reliable, quality service that our customers expect and deserve.”

The company declined additional comment last week.

Citing improved results at YRC’s Holland regional LTL unit, Welch picked Rogers to run YRC Freight in September 2011, barely two months after Welch returned to the company.

In the fourth quarter of 2011, the first full quarter under Rogers’ direction, Freight’s loss excluding interest and taxes was $26.7 million.

Results improved enough that YRC posted operating income of $2.4 million in this year’s first quarter, the first positive operating income since 2007. However, results swung back to a loss of $8.5 million in the second quarter.

Quarterly results deteriorated as YRC Freight completed what was termed a network optimization, including job cuts and terminal closings.

In contrast to YRC Freight, the smaller Regional unit that includes New Penn and Reddaway improved operating profit to $25.2 million in the second quarter from $6.9 million in the fourth quarter of 2011.

Regional’s operating ratio has improved 4.1 percentage points over that period, outpacing the improvement of 2.2 percentage points at the Freight unit.

“The Regional companies continue to provide best-in-class service and more than market competitive margins,” Welch said.

Rogers was installed as president during a corporate housecleaning that eliminated four senior executive posts, including the chief operations officer position held by Mike Smid, who had responsibility for YRC Freight.

Rogers was picked to head the Freight unit after a career that included 14 years as a UPS Inc. executive prior to his arrival at the former Yellow Transportation. Rogers arrived as it was being transformed by now-retired CEO William Zollars.

Zollars turned Yellow Transportation into YRC, tripling its revenue between 2000 and 2005 through acquisitions of other LTL operators and expanding into logistics and overseas business.

As YRC grew, so did profits, until they vanished in the fourth quarter of 2007. More than $2 billion of losses followed.

Welch came back to YRC four years after he left the company early in 2007. Under his leadership, the losses have narrowed but not disappeared. He’s also stripped away truckload, logistics and Chinese business subsidiaries, leaving YRC solely as an LTL operator.

YRC’s management is changing at a time when it faces a variety of questions. A Sept. 23 analyst report noted the company has $1.37 billion of debt, with almost half coming due in the next 18 months, as well as questions about future labor agreements.

“To be sure, the need to refinance debt is critical,” the report from analyst Thom Albrecht said. “Speculation abounds regarding a two-year labor extension beyond the March 31, 2015, contract deadline. Do the banks require a labor extension before they refinance? And will labor require larger raises in exchange for the 2009 concessions? And were the banks behind the Rogers departure?”

Albrecht also said that “the banks didn’t pull the plug on YRCW during 2009 when the losses were staggering and it seemed hopeless. Today . . . the situation is stable. The rate of improvement needs to quicken. A fire sale of assets would not bring the banks all they are owed.”

Albrecht also said he believes YRC will recapitalize its balance sheet and continue to improve its operating ratio.